INTUIT ACADEMY TAX LEVEL 1 EXAM
PREP 150 Q AND AS WITH BOLD
ANSWERS AND FULL RATIONALES
,
,1. John is a single taxpayer who works as a software engineer
and earned $85,000 in salary during the tax year. He also
received $1,200 in interest from a municipal bond and
$2,500 in capital gains from selling stock he held for two
years. When calculating his Gross Income for federal tax
purposes, which of the following statements accurately
describes how these income streams are treated?
A) All three amounts are fully taxable and must be
included in gross income.
B) Only the salary of $85,000 is included; municipal
interest and capital gains are completely excluded.
C) The salary and capital gains are included in
gross income, while the municipal bond interest is
excluded.
D) The capital gains are excluded because the stock was
held long-term, but the municipal interest is taxable.
Rationale: Correct Answer: C. Under the Internal
Revenue Code, municipal bond interest is generally
excluded from federal gross income under Section 103.
Salaries and capital gains are fully included in gross
income, though long-term capital gains may enjoy
preferential tax rates during the tax computation phase.
2. Sarah and David were married for ten years but legally
divorced in June 2022. Under their finalized divorce
decree, David is required to pay Sarah $2,000 per month
in alimony and $1,500 per month in child support. During
the current tax year, David made all required payments on
time. How should Sarah report these payments on her
federal income tax return?
A) Sarah does not report either the alimony or the
child support as income.
B) Sarah must report the full $3,500 per month as taxable
income.
, C) Sarah must report the $2,000 per month of alimony as
income, but the child support is excluded.
D) Sarah reports the child support as income, but the
alimony is deductible by David and tax-exempt to her.
Rationale: Correct Answer: A. For divorce
decrees executed or modified after December 31, 2018, the
Tax Cuts and Jobs Act (TCJA) eliminated the inclusion of
alimony in the recipient's gross income and eliminated
the deduction for the payor. Child support has historically
always been non-taxable to the recipient and non-
deductible to the payor.
3. Robert is 68 years old, single, and legally blind. He is
filling out his Form 1040 and needs to determine his
standard deduction. For a standard single filer, the base
standard deduction is available, but taxpayers who are
elderly or blind receive an additional standard deduction
amount. Which of the following is true regarding Robert's
standard deduction calculation?
A) Robert only receives the base standard deduction
because additional deductions are restricted to married
couples.
B) Robert receives the base standard deduction plus one
additional standard deduction amount for being over 65.
C) Robert receives the base standard deduction
plus two additional standard deduction amounts:
one for his age and one for his blindness.
D) Robert must itemize his deductions because single
filers over 65 who are blind are not permitted to use the
standard deduction.
Rationale: Correct Answer: C. Taxpayers who are
65 or older or blind are entitled to an increased standard
deduction. Since Robert meets both criteria (over 65 and
legally blind), he is entitled to two additional standard
PREP 150 Q AND AS WITH BOLD
ANSWERS AND FULL RATIONALES
,
,1. John is a single taxpayer who works as a software engineer
and earned $85,000 in salary during the tax year. He also
received $1,200 in interest from a municipal bond and
$2,500 in capital gains from selling stock he held for two
years. When calculating his Gross Income for federal tax
purposes, which of the following statements accurately
describes how these income streams are treated?
A) All three amounts are fully taxable and must be
included in gross income.
B) Only the salary of $85,000 is included; municipal
interest and capital gains are completely excluded.
C) The salary and capital gains are included in
gross income, while the municipal bond interest is
excluded.
D) The capital gains are excluded because the stock was
held long-term, but the municipal interest is taxable.
Rationale: Correct Answer: C. Under the Internal
Revenue Code, municipal bond interest is generally
excluded from federal gross income under Section 103.
Salaries and capital gains are fully included in gross
income, though long-term capital gains may enjoy
preferential tax rates during the tax computation phase.
2. Sarah and David were married for ten years but legally
divorced in June 2022. Under their finalized divorce
decree, David is required to pay Sarah $2,000 per month
in alimony and $1,500 per month in child support. During
the current tax year, David made all required payments on
time. How should Sarah report these payments on her
federal income tax return?
A) Sarah does not report either the alimony or the
child support as income.
B) Sarah must report the full $3,500 per month as taxable
income.
, C) Sarah must report the $2,000 per month of alimony as
income, but the child support is excluded.
D) Sarah reports the child support as income, but the
alimony is deductible by David and tax-exempt to her.
Rationale: Correct Answer: A. For divorce
decrees executed or modified after December 31, 2018, the
Tax Cuts and Jobs Act (TCJA) eliminated the inclusion of
alimony in the recipient's gross income and eliminated
the deduction for the payor. Child support has historically
always been non-taxable to the recipient and non-
deductible to the payor.
3. Robert is 68 years old, single, and legally blind. He is
filling out his Form 1040 and needs to determine his
standard deduction. For a standard single filer, the base
standard deduction is available, but taxpayers who are
elderly or blind receive an additional standard deduction
amount. Which of the following is true regarding Robert's
standard deduction calculation?
A) Robert only receives the base standard deduction
because additional deductions are restricted to married
couples.
B) Robert receives the base standard deduction plus one
additional standard deduction amount for being over 65.
C) Robert receives the base standard deduction
plus two additional standard deduction amounts:
one for his age and one for his blindness.
D) Robert must itemize his deductions because single
filers over 65 who are blind are not permitted to use the
standard deduction.
Rationale: Correct Answer: C. Taxpayers who are
65 or older or blind are entitled to an increased standard
deduction. Since Robert meets both criteria (over 65 and
legally blind), he is entitled to two additional standard
